“We are in the process of restructuring our business and will be making a number of redundancies in the coming months.  Historically, we have paid statutory redundancy and an ex gratia additional sum. All employees are asked to sign our standard Waiver/Compromise Agreement before they receive the payments. We have heard about a recent case in the WRC where an employee challenged whether she was bound by the terms of a Waiver and Release Agreement, or not.

We are concerned about accepting signed Compromise Agreements from employees who have not taken legal advice.  How do we handle this?”

You have correctly identified a Workplace Relations Commission case involving Natalia Balajova –v- Tesco Ireland Limited (a decision of the WRC on 7th November 2019).

Background

It is helpful to summarise the case facts, as it is relevant to our advice below. The former employee (“Claimant”) was originally employed as a Warehouse Manager in a large warehouse facility operated by Tesco in Dublin.  The Claimant applied for a voluntary severance package in December 2017 and received the sum of €18,000 in February 2018 in return for resigning her position, and signing a “Release and Waiver” (Compromise Agreement).  In the months following her departure, it came to the Claimant’s attention that some of her colleagues received severance packages that were substantially higher than her payment. The Claimant identified a male comparator who received €40,000.

The Claimant alleged discrimination on the grounds of gender and disability. Before reviewing the substantive complaint before the WRC, the Adjudication Officer had to address the preliminary point, namely that the Claimant was precluded from taking a case against Tesco on the basis of the Compromise Agreement that she signed.

Why use a Compromise Agreement?

Employers regularly use Compromise Agreement to conclude employment relationships with their employees. It is often the case that in the event of redundancies, an employer will pay an additional sum over and above statutory redundancy to their employees. In return for making this payment, employers require their employees to sign Compromise Agreements in which the employees agree that they have no claim, and/or will make no complaint against the employer in return for accepting the sum of money offered.

It is imperative that employers can rely on a signed Compromise Agreement to ensure that the business is protected from future claims, having paid out sums to employees to whom there is no legal obligation to pay such sums.

Case law

In the above mentioned WRC decision, Tesco quoted two seminal cases in support of its position that the Claimant was not lawfully entitled to bring her claim.

1. Hurley –v- The Royal Yacht Club [1997] ELR225

This was a Circuit Court case in which the Judge indicated that the employee was entitled to be advised of the various pieces of employment legislation (by listing the various Acts) which he was agreeing to waive his right to legally pursue, in signing the Compromise Agreement.  Buckley J. also stated “The Applicant should have been advised in writing that he should take appropriate advice as to his rights, which presumably in this case, would have been legal advice.  In the absence of such advice I find the Agreement to be void”.

1. Sunday Newspapers –v- Stephen Kinsella and Luke Bradley [2008] ELR53

In this case, which endorsed the reasoning mentioned above in the Royal Yacht Club case, it was held that any agreement should list the various applicable statutes, and make it clear that these had been considered by the employee before they sign the document.

WRC Decision

Turning to the facts of the case before the WRC, Tesco stated that it had taken three critical steps aligned with the two Court cases listed above:

(i)         It advised the employee to seek legal advice.

(ii)       It gave the employee ample time to seek that legal advice.

(iii)     It acknowledged that the employee was represented by her union at the time she received the document.

The Claimant made some interesting arguments before the WRC, including:

(i)         In agreeing to contract out of any “potential claim”, this only related to future claims that she could have taken at the date that she signed the Compromise Agreement.  She said that she could not see “into the future” and as such did not contract out of her right to take a case against the Company once she realised that others had received a higher sum than her at the date of termination of employment.

(ii)       That she did not receive “proper” legal advice, because legal advice could not be provided by a union official. (This was disputed by Tesco who said that the full time union official had the benefit of in-house legal should it be required.)

In reaching its decision, the Adjudication Officer held that the employee was in possession of the Compromise Agreement for two months prior to signing it.  She was advised to take legal advice and she sought a number of clarifications from Tesco, before she ultimately signed and returned the Agreement to her employer.  The Adjudication Officer rejected that the advice from the union representative was not “appropriate advice” and held that there was no reason to contend that the legal advice could only have been given by a lawyer.

In the circumstances, the Adjudication Officer refused to hear the Claimant’s case under the Equality Acts and held that she had given informed consent when she signed the Severance Agreement.

Takeaway tips

Before proceeding with any of the proposed redundancies mentioned in your query, we suggest that you consider the following practical tips:

1. Review your standard Waiver and Release Agreement to ensure that it lists all relevant and up to date legislation and contains a clause advising employees to seek independent legal advice.
   
   
2. Consider making a contribution towards the cost of legal advice for the employees, prior to the execution of the Agreement. Many employers will engage an independent firm, and make that firm available to any employee who might like to avail of the offer of legal advice. Other employers set out a specific sum that it will pay as a contribution towards the cost of legal advice.
   
   
3. Be mindful of the fact that, based on the above decision of the WRC, it is arguable that had the employee not received appropriate advice prior to execution of the Agreement, she may have been able to pursue her claim against Tesco.  It is imperative that employers are satisfied that employees have had that opportunity to take appropriate advice prior to executing a Compromise Agreement and this is properly documented in the Agreement, in order to best future-proof the employer from new claims of former employees.

The main content of this article was provided by Deirdre Malone, Employment Partner at Ronan Daly Jermyn.  Deirdre may be contacted on 021 4802700 or by email Deirdre.malone@rdj.ie.